Grey crowds swirl past the window pushing shadows on my grim expression before the glass of the 9th floor. Hands are crossed formally behind my back in a posture bordering on uncomfortable dignity. The translucent opacity of my reflection stares down the viewer in between glimmers of light.

And all the while, the signs keep coming.

The gains in EU bond yields are ripping to pieces. They have a ways to go yet, but the voracity of the turnaround is violent.

The euro remains weak, today’s gains notwithstanding. Try and pretend all you want that the euro wasn’t above 1.32 not even four months ago. It has degenerated at a remarkable pace. The closest thing to good news out of Europe in the last month has been that the continent receded at a pace slightly slower than expected.

Some reporter tried to pass that off as “growth” today.

I put no stock into measurements of “confidence”, nor do I ever trust manufactured economic “indicators” utterly subjugated by impertinent political meddling. Men are rash beings which largely live in the moment. They don’t “think” ahead – they “feel” ahead with bad judgment placed on what, in hindsight, are largely irregular emotions. Pretending like their “confidence” is good for much of anything is to make decisions derived from false pretenses. Only the presence of a lack of confidence carries any tactical value and weight in business or economics.

What concerns me is the caliber of those buying into the market; those that are most hard set that the market will continue to trade up, come hell or high water. These are the same people who were claiming the market was doomed – there was no path for redemption available nor would any force of heaven or earth conspire to change its fate – last September when the market head faked lower after the initial QE3/4 announcement.

For four years now, getting caught abandoned in the company of these petulant vanities has been a death sentence.

The industrial and commodity signals show broad weakness heading into the warm months; the exact format of every second and third quarter of the years since 2009. Just have a look at copper, and then dare to herald the excitement of 40 year old industry outsiders for stocks as being of any consequence to me.

As enthusiastic as these small player amateurs are now, so will their regret be double when they’ve been scattered for the umpteenth year in a row.

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The EURUSD is being flayed.

Oil is rallying back to $100 on the backs of demand destruction and record supply coming to market.

Cain Thaler has apparently forgetten basic financial reporting concepts.

TSLA stock is rallying because a company that’s never made money selling a car, to this day, has decided to increase the size of its secondary offering.

And of course, everything is up.

I’ll back off my TSLA trash talk a little. Clearly there was no grounds to say that TSLA hasn’t sold any cars. A little hyperbole is fun, but obviously they have had some success. Despite that, there is no doubt in my mind that they are padding the shit out of this quarter. Some of this is political – I don’t trust anyone in bed with the DOE. Some of it is prejudice – I come from Detroit, so if I don’t see cars, I assume they don’t exist.

As it stands, even with the rookie cash flow miss not getting picked up before I rushed to publish, there’s a lot for me to hate about that company’s books. If I’m wrong about sales of the electric platform, I promise I’ll hold a big post where I self flagellate and get all melancholy. But it won’t be for a few quarters because I’m going to give the company plenty of time redact earnings and own up.

I think the problems are there, not initially because of any numbers, but because of the small comments and way the disclaimers and disclosers are being laid out. I went searching for the numbers to support that, and largely failed. But that doesn’t mean I’m going to start jumping up and down with trust of the management.

Ultimately, my opinion is that Tesla’s product is a beautiful piece of craftsmanship and engineering that won’t make any money. The EV1 will have a gravemate yet. I’m not advocating shorting TSLA; merely commenting that paying $90 plus for a company that turned one quarter of profits in 10 years, largely not from selling their main product, is a very bad idea.

For the moment, I am still largely cash, short the euro with EUO, short oil with SCO, and holding AEC, CLP, CCJ, BAS, RGR and physical silver that’s getting cheaper by the day.

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All the hype about Tesla made me curious, so I did what apparently no one else has thought to do, and looked at their books.

A few things you should know about TSLA:

1) If you take the company’s own reporting at face value, the stock is good for – maybe – $1.50. And oh since $200 million of their “net worth” is tied up in inventories at the moment, realistically the stock is worth $0.00. Remind me what the long term value of unsold car inventories is again…

Clearly this is about the earnings. I guess if TSLA can sell like the wind, it will more than compensate, and build some value here.

Too bad…

2) The company’s earnings aren’t believable.

TSLA claims it booked half a billion in revenue last quarter. Alright, so I mosey on down to the cash flow section.

Someone show me where any of those numbers adds to half a billion? Hell, even their financing isn’t showing evidence of any “gimmick” cash flow. So they did half a billion dollars last quarter without half a billion dollars ever changing hands…um, anywhere. (Oops that’s embarrassing. That’ll teach me for writing quickly and not proofreading. Ottnot pointed out why that was clearly wrong – hat tip. I’m caught red handed here. What I was attempting to look for was where the financing for vehicles was going – but it’s run through BAC and another bank so it wouldn’t even show up on their report. Duh)

(That being said, this is a car company that still hasn’t made any money selling cars, as easily witnessed below)

Buried deep in the report is this paragraph:

“Significant operating cash inflows were comprised primarily of automotive sales of $555.2 million, an $18.2 million decrease in inventory and operating lease vehicles, $6.6 million of development services revenue and a $4.1 million net increase in deferred revenue associated with various vehicle service plans introduced in March 2013. Significant operating cash outflows for the three months ended March 31, 2013 were primarily related to $465.5 million of cost of revenues, $101.9 million of operating expenses, a $26.6 million decrease in accounts payable and accrued liabilities primarily due to the timing of vendor payments, an $8.1 million net decrease in customer deposits as a result of the sales of Model S and a $2.6 million increase in prepaid expenses and other current assets.”

That’s funny: 466 + 102 + 27 + 8 + 3 = a number that is definitely greater than 555. It sounds like Tesla didn’t make any money selling these $555 million worth of cars that don’t appear on their primary cash flow statements.

So I push down into their report and find this gem:

“We recognize revenue when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) fees are fixed or determinable; and (iv) collection is reasonably assured.”

I’m thinking that “and” there before point iv should actually be an “or”; as in, “if we think maybe we really actually are going to sell a car then we just count it right then, rather than, you know, using the same standard of ‘revenue’ as every other person on this planet uses”.

“And – Or” all those other definitions of revenue. Follow?

And someone tell me what this means:

“5. Customer Deposits

Customer deposits consist of payments that allow potential customers to make an advance payment for the future purchase of a Model S, Model X or Tesla Roadster. These amounts are recorded as current liabilities until the vehicle is delivered. We require full payment of the purchase price of the vehicle only upon delivery of the vehicle to the customer. Amounts received by us as customer deposits are generally not restricted as to their use by us. Upon delivery of the vehicle, the related customer deposits are applied against the customer’s total purchase price for the vehicle and recognized in automotive sales as part of the respective vehicle sale.

Historically, we have referred to such customer deposits as reservation payments and these initial reservation payments have been fully refundable until such time that the customer selected the vehicle specifications and entered into a purchase agreement. We recently eliminated the reservation process for Model S in North America as vehicle production became more reliable and customer wait times decreased. Customers now initiate their purchase by ordering their customized Model S rather than placing a generic reservation in queue. As a result of this transition away from reservations, we have renamed the “reservation payments” caption on our condensed consolidated financial statements to “customer deposits.” “

All in all, I very much question whether Tesla sold any real cars. There are only something like 40 servicing stations in their entire network. They’re hoping to double that, but still, not exactly a huge target market here.

I think what Tesla really did was sold options to sell cars. Refundable options…

Which is why their cash flow sucks.

On the plus side, they also don’t seem to have any off balance sheet entities – I was shocked by that. But I guess you don’t need to when the government is handing you hundred million dollar loans.

But other than that, the prospect for high end electric vehicles is pretty much what it’s been since the 90’s…terrible.

If this is really going to take off, the infrastructure for refueling needs to be there, and I doubt Tesla can pull that off on their own.

I’ll leave you with these disclaimers, which were absolutely SUNK in the dark nether regions of their filing:

“If we are unable to adequately reduce the manufacturing costs of Model S or otherwise control the costs associated with operating our business, our business, financial condition, operating results and prospects will suffer. “

“The range and power of our electric vehicles on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase our vehicles. “

“We are dependent upon our loan facility from the United States Department of Energy. “

“Our distribution model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating our business, operating results and future prospects difficult. “

“Reservations for Model S and Model X are fully refundable to customers, and significant cancellations could harm our financial condition, business, prospects and operating results. “

“We have very limited experience servicing our vehicles and we are using a different service model from the one typically used in the industry. If we are unable to address the service requirements of our existing and future customers our business will be materially and adversely affected. “

“Regulators could review our practice of taking reservation and deposit payments and, if the practice is deemed to violate applicable law, we could be required to pay penalties, refund the payments stop accepting additional payments, and restructure certain aspects of our sales program. “

“We are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock. “

“Mr. Musk borrowed funds from an affiliate of our underwriter in our public offering in 2011 and pledged shares of our common stock to secure this borrowing. The forced sale of these shares pursuant to a margin call could cause our stock price to decline and negatively impact our business. “

_____________________________________

Sorry, the amateurish cash flow point not withstanding, this is a very expensive car company, particularly if they can’t get costs down.

And I still can’t help but think maybe the (now announced) secondary offering wasn’t perhaps a little in mind when “sales” were being transacted this quarter…

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Let’s set aside for the moment the passionate struggle to subvert other market players to our line of thinking, in that mighty attempt to “spark the inflection point”. In my own mind, the rally is in the process of sputtering, as sector rotation exhausts buying enthusiasm; but I don’t want to argue about that right now.

Rather, let us just stand and remark in awe at the utter magnificence that was the last eight months. Truly, such a thing is like a rare glimpse of a comet or supernova – a celestial blessing to be observed in solemn wonder.

We all got rich here (unless you’re a dumb short seller)…whether you’re sitting 100% long or 80% long, or 50% long, or less, we’re all still making money off of this.

Truly the greatest winter Christmas rally of all time.

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It’s frightening how easy “investing” has become over the last five months. The yesterdays of 2012 are now far behind us, and mistakes and losses are an alien concept again. Much like early 2012 brought relief from the horrors of 2011. And 2011 in turn brought salvation from 2010. Etcetera.

The only thing more frightening than how easy playing this tape is would then be how many of you think you’re any good at this. IBankCoin traffic stats tell that story all too clearly. You’re an ace, batting 80%+ trades and you make Bill Miller look like a homeless person. You don’t need anyone anymore.

This dual function of mine makes this very frustrating. Nothing is more annoying than penning a detailed piece of a company’s management or laying out the market climate to the applause of perfect plumbing and no one reading the work. In that sense, I guess my call late last year for the most awesome rally ever was something of a nail in my own coffin (*cough* remind me how many of you bulls there were then…?). Irony can be a cruel mistress.

Whatever. You’ll come crawling back in no time.

First sign of trouble, maybe the second, and suddenly you’ll remember that you’re not so much an elite trader as a guy dabbling in a margin account (probably funded with advances from several credit cards) whose been so lucky to be on the right side of the trading over the last few months.

How many of you are locking in gains and thinking about cash? When was the last time you even bothered looking at what it is you actually own? What are the pathways to success or failure for your book?

By this time in September, site traffic will be back. Most of you are high on life right now, having chosen the most favorable conditions to try your hand at sailing. Nice clear skies, calm and steady wind and you’re on a path that never requires tacking.

But I’m watching those conditions turn. The wind is getting a little more erratic. The rain is coming out. It’s getting dark. We’re pressing into shore. And you’re not a sailor, buddy.

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So the company I presently work for decided to invite a group to come in and give a presentation on investment and retirement. More than a little in gest, I signed up.

Three hours of material spread over two days into this, I can say conclusively…wow, we haven’t learned a damn thing.

It’s all the same shit folks. Modern portfolio theory, asset allocation models, long drawn out talks about teeter totters…the only difference is that now they’ve added casual notes about systemic risk to their 90’s designed slide trying to push me into buying Greek equities.

Hahaha, that was the best part – when the presenter was telling the room that Greek equities were up 50%+ this year.

“You’ll miss out on the big upside if you’re just in American equities.”

Yeah, I think you’ve got a little way to go still…

Ah well – it’s not like the average person should be buying anything more than a mutual fund or index anyway. Just press that 401K allocation and worry about the taxes.

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